2017 (10) TMI 247 - HC - Income Tax

Tax appeal is admitted for consideration of following substantial question of law Whether on the facts and circumstances of the case, Appellate Tribunal was justified in deleting disallowance made by Assessing Officer u/s 40(a) (ia) of the Act on payment of ₹ 70,18,471/- to M/s. Ashwin Chinubhai Broking Pvt. Ltd.? Disallowance u/s 40(a) (ia) on payment towards V-Sat expenses and other connectivity charges - Held that - Such an issue has been decided by the Supreme Court in case of Commissioner of Income Tax vs. Kotak Securities Ltd. 2016 (3) TMI 1026 - SUPREME COURT as held that the brokers make payment to the stock exchange for the facilities of faceless screen based transactions made available at the stock exchange which was compulsory for the brokers to use. In the opinion of the Supreme Court, this was not a payment of fee for technical service rendered by the stock exchange inviting deduction at source under section 194J of the Act. This being the position, second question is not admitted.

Summary

Issues:
1. Disallowance made by Assessing Officer u/s 40(a) (ia) of the Act on payment to M/s. Ashwin Chinubhai Broking Pvt. Ltd.
2. Disallowance made by Assessing Officer u/s 40(a) (ia) of the Act on payment towards V-Sat expenses and other connectivity charges.

Issue 1: Disallowance to M/s. Ashwin Chinubhai Broking Pvt. Ltd.
The High Court admitted the tax appeal to consider whether the Appellate Tribunal was justified in deleting the disallowance made by the Assessing Officer under section 40(a) (ia) of the Act on the payment of ?70,18,471 to M/s. Ashwin Chinubhai Broking Pvt. Ltd. The Revenue also proposed another question regarding the disallowance of ?11,51,418 towards V-Sat expenses and other connectivity charges. The counsel for the Revenue argued that a similar issue was under consideration in another Tax Appeal. However, the respondent's counsel referred to a Supreme Court judgment in the case of Commissioner of Income Tax vs. Kotak Securities Ltd., where it was held that payments made by brokers to stock exchanges for mandatory facilities were not payments for technical services, thus not inviting deduction at source under section 194J of the Act. Consequently, the High Court did not admit the second question based on the Supreme Court's decision.

Issue 2: Disallowance towards V-Sat expenses and other connectivity charges
The second issue pertained to the disallowance made by the Assessing Officer under section 40(a) (ia) of the Act on the payment of ?11,51,418 towards V-Sat expenses and other connectivity charges. The respondent's counsel relied on the Supreme Court's judgment in the case of Commissioner of Income Tax vs. Kotak Securities Ltd., where it was established that payments for facilities provided by stock exchanges were not subject to deduction at source under section 194J of the Act. This legal position led to the rejection of the second question proposed by the Revenue, as it was in line with the Supreme Court's interpretation. Therefore, the High Court did not admit the question related to the disallowance of V-Sat expenses and other connectivity charges based on the precedent set by the Supreme Court.

In conclusion, the High Court's judgment addressed the issues of disallowance made by the Assessing Officer under section 40(a) (ia) of the Act concerning payments to M/s. Ashwin Chinubhai Broking Pvt. Ltd. and V-Sat expenses along with other connectivity charges. The decision was influenced by the Supreme Court's ruling in the case of Commissioner of Income Tax vs. Kotak Securities Ltd., which clarified the treatment of such payments under the Income Tax Act, leading to the rejection of the Revenue's contentions.